THE MOST DESTRUCTIVE MONETARY MYTH IN THE USA…30 January 2012 by Cullen Roche

There’s a myth in the USA that just won’t go away. It’s this idea that a household balance sheet is somehow comparable to that of the federal government’s. Few myths are more destructive and lead to greater confusion and/or misguided government policy. In recent months this has become a particularly public subject as the debt ceiling debates have raged and the European debt crisis continues. The problem is, the analogy between a sovereign government’s balance sheet and a household’s balance sheet is never accurate. The reason this analogy always fails is due to the difference between being a currency issuer and a currency user.

In the following video I explain briefly why this is such a destructive myth and why this country desperately needs to learn that the burden we leave our children is not a debt burden, but a certain living standard. It’s true that spending money at the government level could reduce this living standard and we could certainly leave our children with a standard of living that is below our own, but what we won’t leave them with is a bill that they need to pay off in the form of some debt burden.

See the following video for more and read the following links if you’re still confused:

I certainly agree that the comparison between the U.S. finances as a nation and a household's finances is faulty. The U.S. will always be able to pay their bills, as it can always print more money. Sure. Got it.

But isn't the debt ceiling indirectly also a measure of how big government is and how much power they hold? I am not sure people are always against the debt ceiling being raised for the right reasons, but I am much more in favor of a free market without too many government programs and services, like Obama's healthcare program, or the EPA telling people what they have to do to care for the environment.

Also, can someone give me some context as to where inflation enters into context? How is federal spending related to inflation (I always hear people say it isn't)?

But isn't the debt ceiling indirectly also a measure of how big government is and how much power they hold?

In the context of the the US Dollar, the US Government holds all the power. It is the monopoly issuers. Every other party are users.

Also, can someone give me some context as to where inflation enters into context? How is federal spending related to inflation (I always hear people say it isn't)?

Federal spending and inflation are related. In fact, demand-pull inflation is the only real constraint on deficit spending (it is not 'solvency'). Please read this post: http://caps.fool.com/Blogs/why-deficit-spending-and/621467 (or this version of the same post with less typos). Read the whole thing if you have not read it before. But the section of immediate relevance to your question is section 3: The Fiat Currency System and Inflation.

That section explains the differences and mechanisms of cost-push vs. demand-pull inflaton. Here is another comment along those lines: read this.

I actually believe the government and the fed want people to believe in this myth. It gives our government and in particular the dollar more legitimacy. If everyone understood the way our currency is created via debt creation at the treasury, currency printing at the fed, and fractional reserve lending, this system couldn't exist as such. This myth is what perpetuates this scam of a system.